and gentlemen, thank you for standing by and welcome to the American Express Third Quarter 2013 Earnings Call. At this As a reminder, today's conference is being recorded. I would now like to turn the conference over to your host, Mr. Rick Petrino. Please go ahead, sir.
Thank you. Welcome. We appreciate all of you joining us for today's call. The discussion today contains certain forward looking statements about the company's future financial performance and business prospects, which are based on management's current expectations and are subject to risks and uncertainties. Factors that could cause actual results to differ materially from these forward looking statements are set forth within today's earnings press release and earnings supplement, which were filed in an 8 ks report and in the company's 2012 10 ks already on file with the SEC.
The discussion today also contains certain non GAAP financial measures. Information relating to comparable GAAP financial measures may be found in the Q3 2013 earnings release, earnings supplement and presentation slides as well as the earnings materials for prior periods that may be discussed, all of which are posted on our website at ir.americanexpress.com. We encourage you to review that information in conjunction with today's discussion. Today's discussion will begin with Jeff Campbell, Executive Vice President and CFO, who will review some key points related to the quarter's through the series of slides included with the earnings documents distributed and provide some brief summary comments. Once Jeff completes his remarks, we will move to a Q and A session.
With that, let me turn it over to Jeff.
Thanks, Rick, and good afternoon, everyone. I'm excited to be here on my first quarterly earnings call with American Express since joining the company on July 15th and listening as Dan Henry managed the Q2 earnings call later that week. I'm also excited to have my first earnings call be 1 where we have such solid results to discuss. Our performance during the quarter produced strong EPS growth, built upon improved build business revenue growth trends, a continuation of excellent credit performance and disciplined control over operating expenses. During the quarter, we also made a number of strategic announcements, which I'll discuss later on the call.
To begin with the summary you can see on slide 2, FX adjusted growth in build business of 9% is the primary driver of our FX adjusted revenue growth rate of 7%. This FX adjusted Our strong capital position allowed us to continue our share repurchase efforts, which cumulatively resulted in our average shares outstanding declining by percent versus the prior year. The combination of our solid operating performance and strong capital position drove our earnings per share to $1.25 which was up 15% versus the prior year. These results help to bring our ROE for the period ending September 30 to 24%. As a reminder, ROE is calculated on As a reminder, ROE is calculated on a rolling full year basis.
So this quarter will be the last one to include the impact of the 3 previously announced items we experienced in Q4 2012. Excluding these items, the adjusted ROE for Q3 'thirteen is 27%. We feel good about this improved performance, especially considering the continued moderate pace of the economic recovery. Now focusing first on our bill business, loan and revenue performance. You can see on slide 3 that bill business growth remained healthy across all of our segments, as it increased sequentially from 8% to 9% overall on an FX adjusted basis.
We continue to see particularly strong performance in G and S, which grew by 16% year over year on an FX adjusted basis. GNS volume growth in Asia, including China and Japan, remained particularly strong. Also worth noting was that corporate card billings growth improved to 7% on an FX adjusted basis from 5% in Q2 as we lap the slowdown in corporate spending that we saw beginning with the second half of twenty twelve. Looking at build business growth by geographical region on Slide 4, you see that growth rates accelerated slightly across all regions sequentially versus the Q2. A particular note here is that EMEA FX adjusted growth improved to 8% during Q3, which is the highest growth we've seen in that region since 2011.
Turning to loans, we continue to see modest growth in loan balances as shown on slide 5. Worldwide loans grew by 2% versus the prior year. Our growth rate in loans in the U. S. Was 3%, which continues to outpace the industry average.
I would remind you that our loan growth is really an outcome of our continued focus on and growth in our spend centric customer base and is not necessarily an objective in itself. Putting it all together on the revenue side, you see on slide 6 that overall revenue growth was 6% on a reported basis and on an FX adjusted basis accelerated from 4% in Q2 to 7% in Q3. Consistent with our spend centric model, this revenue growth was driven primarily by higher discount revenue from increased spending volumes. Secondarily, revenue growth was aided by net interest income increasing by 9% versus the prior year as we experienced lower funding costs along with the increase in average loan balances. It's probably also worth calling out that the 5% increase in travel commissions and fees growth looks like a significant uptick from Q2 where we saw a 5% decline.
Both of these year over year changes however were impacted by the timing around the re signing of certain supplier contracts. Turning to the provision. Overall, our credit performance remains excellent and helped provide us the financial resources we need to continue to grow the business. Looking at the metrics highlighted on Slide 7, you see that worldwide lending write off rates, which were already at historically low levels, declined further during the Q3 and also remained best in class. Our strategy to focus our lending acquisition efforts on premium lending products continues to help attract lower risk card members into our franchise.
While we would expect that lending write off rates will eventually increase from today's historically low levels, you also see on Slide 7 that we have not yet seen any signs of credit deterioration overall as total delinquency rates remained consistent with the prior quarter. Slide 8 shows that our lending reserve coverage levels also remained relatively consistent with the prior quarter. We believe that our coverage levels remain appropriate given the risk level inherent in the portfolio. Finally, as you can see on slide 9, despite the improvement in write off rates, our provision was slightly higher than prior year as decreased write offs in the current year were more than offset by higher volumes and a lower level of reserve releases. Turning now from the revenue side to the expense side.
As you can see on slide 10, total expenses grew by 5% versus the prior year. As you would expect, growth rates differed across the various expense lines as we prioritized our spending across the business. At a high level, you see a few things in these lines. Year over year growth in rewards expense was relatively consistent with our build business growth during the quarter, while card member services was relatively flat. We continue to show good control over operating expense, which I'll come back to in a minute.
All of this is aimed at providing the ability to invest in growth, which primarily though not completely flows through the marketing and promotion line, while still seeking to achieve our financial targets. Now as I mentioned, we do remain very focused on controlling operating expenses to make our business more efficient and provide additional resources for growth initiatives. Slide 11 shows you some of the detail of our operating expenses for the quarter. Most importantly from a recurring perspective, salaries and employee benefits expenses were up only 2% versus the prior year, demonstrating our strong controls in this area. While total operating expense growth of 4% was higher than what we have seen earlier this year, this was due in part to some choices we made to increase investments in technology as well as some costs we incurred associated with the 2 transactions we announced during the quarter.
The potential business travel joint venture and the sale of our publishing business. So while growth rates can fluctuate in any given quarter, our year to date operating expense performance is flat versus the prior year and remains well below our annual target as shown on Slide 12. We remain confident in our ability to have operating expenses grow by less than our 3% target for the full year. I think it's also important to point out that these results reflect many of the benefits of the reengineering actions we announced earlier this year, which have helped us continue to proactively adapt and strengthen every aspect of our business, as well as allowing us to address changes in customer preferences towards online and mobile servicing in particular. In my 1st months at American Express, I would further say that one of the things that I have been particularly impressed with is the company's ability to achieve our reengineering and cost targets, while not just maintaining, but actually improving the level of service provided to our customers.
In addition, we have been able to achieve these results while funding growing investments in our critical control and compliance efforts. As a result of all these improvements, customer service remains a key competitive differentiator for Avera and Express, as evidenced by the announcement last month of Ira winning our 7th consecutive J. D. Power award for achieving the highest customer satisfaction in the U. S.
Credit card industry. So to come back to the prioritization we do across all our expenses. During the Q3, we were able to deliver excellent financial results, while still funding substantial investment opportunities. As we think about these investment opportunities, we balance our mix of spend between shorter and longer term horizons as well as between traditional versus newer opportunities. As you would expect, the largest portion of our investment dollars targets the significant opportunities we see in our existing card businesses, in the U.
S. As well as around the world given our focus on international growth for the past several years. These initiatives include card and merchant acquisition, building loyalty with existing card members and the expansion of our GNS business. Many of these initiatives were the drivers of our marketing and promotion expense growing by 8% versus the prior year, which put us at a higher level than we've seen in recent quarters as you can see on Slide 13. We continue to see many attractive opportunities in the marketplace, including those for new customer acquisitions.
In particular, we believe that there continue to be significant opportunities to grow our volumes around the world by acquiring new charge and premium lending prospects on our products. Our solid control over operating expenses is helping us to fund these efforts. But I also want to remind you that while a significant amount of our investments are still included within the marketing and promotion line, over time an increasing percentage of our key investments are occurring within operating expenses, including expansion of our merchant and corporate sales force, technology development and enhancements to our control and compliance activities. It's also worth noting that we continue to invest in and see great progress in expanding our network business around the world. Our new partnership with Wells Fargo, which we announced in August, clearly illustrates the value that others see in our global network as well as the potential opportunities we have to grow the network business both internationally and in the U.
S. As I said earlier, we also target a portion of our investments for longer term opportunities, including many initiatives in the digital space that we believe are attractive opportunities, but they will take longer to pay back. 2 of our larger efforts in this area are around reloadable prepaid, our products that help you move and manage your money, which we extensively discussed at our recent financial community meeting, as well as our loyalty partner rewards coalition program. On the former, we were pleased last week to announce the relaunch of the served product. And on the latter, we continue to see the number digital initiatives, we believe provide potential new opportunities for growth over the longer term.
So turning now to capital. Our strong capital position and the sizable amount of new capital we generate through net income each quarter provides significant flexibility. This allows us to balance the capital needs in our businesses, our desire to maintain strong capital ratios and the potential for significant capital returns to our shareholders. The benefits of our strong capital position were on display this quarter, as we returned 86% of capital generated to shareholders while still maintaining the capital ratios you can see on slide 14. We are of course working hard on the planning for our 2014 CCAR submission and are continuously improving and evolving our process.
We remain committed to maintaining our strong capital position while also leveraging that strength to create value for our shareholders. Part of our commitment to maintaining a strong capital position has been working to evolve the mix of our funding sources, which you can see on slide 15. We have worked hard to improve the diversity of our funding sources by driving a significant increase in the contribution from deposits. We've seen excellent traction in the growth of our personal savings direct deposit program and deposits now make up over 40% of our total funding. Overall, our liquidity position remains strong and we continue to hold enough cash to cover our next 12 months of funding maturities.
Given today's political climate, which I will come back to at the end. It's probably also worth noting that the majority of our cash is held on deposit with the Fed and our direct holdings of treasuries constitutes less than 1% of our liquid assets. Turning to other events of the last quarter, let me make just a few comments on the 2 other announcements we made. First, in September, we announced plans to create a joint venture designed to accelerate the transformation of our global business travel division. American Express has a long history in business travel and we believe this proposed joint venture would create greater investment capacity for the business, allowing it to further enhance its suite of products and services, attract new customers and grow internationally to deliver additional value to customers.
This should all serve to strengthen the linkages with our corporate card and other businesses. We will plan to update you with more information about the proposed transaction and its financial impact as we progress towards a potential closing date, which we currently estimate will be Q2, 2014. On a much smaller scale, we also announced in September the sale of our publishing business to Time Inc. And this transaction closed in early October. Publishing constitute a relatively small percentage of our revenues and earnings during the past several years.
It did however provide a valued benefit to our customers' card members. So while banking regulations limit our ability to engage in non financial activities, our operating agreement with Time will help ensure a seamless transition. From a financial perspective, the publishing business will no longer be reflected in our financial statements beginning in Q4. Before I conclude, I feel it's only prudent to add a few comments regarding the government shutdown and debt ceiling as we all watch by the hour what is happening in D. C.
We have not yet seen any direct impact on our business here at American Express, But we're not immune from the broader economies in which we operate. No one is. Now as we started this call, it looks like our leaders in D. C. Are finally coming to an agreement in both the Senate and the House.
Resolving the stalemate is critically important. The alternative is an outcome that would erode consumer confidence and jeopardize a still uncertain economic recovery. So in summary, coming back to our results, we feel very good about our overall performance in the current economic environment. During the quarter, we saw modest improvements in billings growth across all regions. We also saw improved revenue growth, which then combined with best in class credit metrics, discipline on controlling operating expenses and a strong capital position to generate healthy earnings growth.
Our financial strength allowed us to achieve this growth while still investing in the growth opportunities we currently see in the marketplace. Looking forward, we continue to believe that the flexibility of our business model enables us to deliver significant value to our shareholders. With that, I'll turn the call back to the operator for your questions. I would ask that you limit yourself to one question with one follow-up, so that we can ensure we give as many people as possible the chance to participate. Operator?
Thank We'll go to the line of Sanjay Sakhrani from KBW. Please go ahead.
Thank you. Good evening. So I had a quick question on bill business volumes. When we look at the acceleration even on FX adjusted basis, it's fairly modest year over year. Could you just talk about how you guys feel about that and what might be some of the constraining factors that are leading to some temporary growth year over year?
And then secondly, just on prepaid, I know you guys talked a lot it this quarter. I was just wondering if you could just discuss its contribution to profitability and how you guys think about its contribution maybe over time? Thank you.
Great. Well, I would say given the continued moderate pace of economic recovery both in the U. S. And the other most of the other significant economies we serve around the globe. We actually feel pretty good about the sequential acceleration you saw from 8% to 9% in FX adjusted billing growth.
And I think we would not necessarily expect to see dramatic uptick until we saw something different happening in the economy. That also brings me back I think to the importance of nothing happening in D. C. Tonight or tomorrow that further disrupts the pace of economic recovery in the U. S.
And elsewhere. On the prepaid point, we did spend quite a bit of time at the August Financial Community Meeting, having Dan talk about our enterprise growth efforts and in particular about our efforts in the reloadable prepaid market. You also heard me in my comments talk a little bit about how we try to as we think about where we're investing, we like to create a mix of investments, some of which are targeted at producing short term results to help us achieve our financial targets next year and some of which have much longer term time horizons. And certainly, we would put what we're trying to achieve in the reloadable prepaid market in the latter category. We are very excited about that market and we see a very significant market potential in the longer term as I think Dan did a very nice job of taking people through in August.
Also demonstrated showed you a number of metrics at that meeting that we think are very early, very positive indicators about the potential that we see in the market longer term. But it is a longer term prospect. And certainly in the near term, the revenue and earnings contributions from the prepaid market will be fairly modest. But we think it's a really important part of the broader investment portfolio and we think it's a really important part of what a company of our size and scale that manages itself for the long term needs to do. And that is have a mixture of both initiatives targeted at short term growth as well as those targeted at the long term.
Okay, great. Thank you.
Thank you. And next we'll go to the line of Don Fandetti of Citigroup. Please go ahead.
Thank you. Jeff, I was wondering if you could talk a little bit about historically, I think one of the concerns at AmEx has been when the top line starts to accelerate that there's a propensity to boost expenses. And I was just curious if you think there's a strong commitment still to keeping expenses under control as we look like we're turning the corner on top line growth?
Well, I think that's a very good question, Don. And as I said in my comments, one of the things I've been most impressed by in my 1st 3 months here is the commitment of the company and the extent of the reengineering efforts going on across this entire company, all aimed at hitting the expense targets that we set for this year and for next. And in fact, we have done much better than we set out to do in 2013. We are flat year to date and we're certainly very confident that we will come in for the full year below our target of 3% operating expense growth. When we launched those initiatives, we did talk about 2014 as well and it's certainly too early to give you a forecast for 2014.
But what I would tell you is that many of the initiatives, many of the things that we're doing in the reengineering area are only in mid flight. And there are many aspects of the program that will still continue to play out next year. And so I certainly feel very comfortable saying it's an appropriate target for us in 2014 to continue to see the kind of great control on operating expenses that you see in 2013. Now I would say as you go beyond 2014, we are very committed to our financial targets and we've had the same long term financial targets since 1993. But we are also very committed to managing the company for the long term and to using our financial strength to continually invest in growth opportunities both in our traditional businesses and some of the things that we think are a little longer term as Sanjay just asked about in the prior question.
So some of those investments at times are going to drive operating expense the longer term. So as the near term benefits of the reengineering start to become more distant as we move beyond 2014, I think we will be thoughtful about how we manage expenses across the company. But our larger goal will be to continue to achieve the kind of growth we have over a much longer time period historically that is consistent with our long term financial targets. Thanks.
We will go next to the line of Craig Maurer with CLSA. Please go ahead.
Yes. Hi. Thanks for taking my questions. Regarding marketing, 9% of total revenue is that still an appropriate target for the year? And to follow-up on other revenue excluding ICBC gains, which I believe were in the numbers last year that line was up nearly 10%.
Is the growth there being driven by loyalty partner above everything else? Thanks.
Well, let me take those one at a time. On the marketing, I think as I've on the history, Craig, at one point we said if you take a historical average view, our marketing and promotional expenses have on average been about 9% of revenue through different parts of the cycle. Certainly, if you just even look at the slide that's in the deck today, you see that there's quite a bit of quarterly volatility to that number. And I think the more important way to think about the target is we are very committed to achieving the financial goals we have around earnings growth in particular. And we see the marketing and promotional line is one of the most important levers we have to help us achieve those targets while still funding a significant number of growth initiatives to allow us to continue to grow into the future.
So at times, that's going to drive us above 9%. If you at this quarter, we actually are at about 10% of revenue this quarter in terms of marketing and promotion. So I guess that historical average is an okay reasonable guideline, but our real goal is to continue to drive towards the long term financial targets on the bottom line. In terms of other revenue, I would tell you the ICBA excuse me, ICBC gains were fairly similar both last year and this year in the results. And I don't know if there's any other particular drivers in that other revenue line.
As you would imagine, there's a number of things that make that line up and that can produce a little bit of quarterly volatility, but there's nothing reflective of any longer term trend.
Thank you.
Thank you. We'll go next to the line of Ryan Nash with Goldman Sachs.
Good evening. Just a follow-up on your comments pertaining to the government shutdown. I guess first, can you give us a sense of how spend volumes progressed during the quarter? And while you haven't seen a direct impact, did you see corporate spend slowing as we as the shutdown approached?
Well, couple of comments, Ryan. One thing even in 3 months here, I've learned to be a little cautious about is attaching too much significance to daily or weekly trends because they are volatile. With that caveat, what I would tell you is that we are certainly pleased with the modest sequential improvement in our build business from 8% to 9% on an FX adjusted basis. And really if I take the time period from the beginning of the quarter on July 1 really to the most recent days, there's no particular trends within that between the beginning of the quarter and a couple of days ago that show any meaningful variance from that overall sequential trend. So there's just nothing in our data that would support any particular impact amongst our customer base and what they spend money on from the economic terminal.
But boy, I don't want to in any way draw a conclusion that the uncertainty being created in D. C. If it continues isn't eventually going to cause a real challenge economically for us and for many people.
Got it. And then just on an unrelated note, on the NII growth, you noted that loan balances were up 2%. I think you said NII growth was up 9%. And I know some of that's coming from lower funding costs, but it seems like a lot of that is actually coming from the yield side. Any is there anything seasonal component
of that or is there
any changes in the underlying portfolio dynamics that portfolio dynamics that drove such a large year over year increase?
Well, the short answer is no. So it's really as simple as the loan balance being up a little bit and the funding costs are really the larger driver not so much the yield we're getting in the loans, but our funding costs are down nicely year over year and that's what drove the 9%.
Thanks for taking my questions.
Thank you. We'll go next to the line of Betsy Graseck with Morgan Stanley.
Hi. Just a follow-up on the last question. So what is the opportunity for continuing to reduce funding costs going forward deposit repricing or mix shift?
Well, excellent question. So you're correct in terms of the underlying premise of your question, which is if you think about the past year, you have both frankly a little better rate environment based on the part of the interest rate curve that drives our funding along with the steady improvement in the mix in particular the larger mix that deposit or larger portion of the deposits are in the mix. I would say that we have multiple goals when we think about our overall funding. And while minimizing the cost is one of those goals, so is having a diverse group or a diverse set of sources of funds. So is regularly accessing the various structure of the company both at the parent level as well as the 2 U.
S. Banks that are part of American Express. And so when you put all of those things together, I would say that the steady growth in deposits that you've seen over the last couple of years is probably at least in the near term at a bit of a standstill. And so where we are today, we're pretty comfortable. And our funding costs a function of where interest rates go, if you think about the near term.
Okay. And then the flip side of NIM obviously is the yield. Could you give us some at the margin more competitive actions taking place on yield trying to attract incremental balances. How do you guys think about that?
Well, of course, there would be many different answers to that, depending on which market, but the U. S. Market is certainly the most important market for us financially. And to touch on that one a little bit, I guess, our goal is to continue to use a variety of products and initiatives all targeted at trying to grow the franchise with the demographics that you like, which are the more affluent, spend centric customers who value the brand and the service. And that really is our goal as we think about the design of products, as we think about competitive responses.
And we use lots of different attributes of our products and lots of different marketing approaches to try to get at that demographic. But trying to out compete people on just offering lower yields or rates does not really rate very highly on our list. And while the competitive environment is certainly a challenging one, it's always challenging. We feel pretty good about our retention of customers. 1 of the things we talked about, if you go back to the August Financial Community Meeting, was the fact that if you look at our attrition rates, so these are customers or card members in the U.
S. Who leave us voluntarily. Those attrition rates have steadily declined over the last 5 years and continue to steadily decline. And so, when we look at that statistic, it makes us feel pretty good about the fact that we remain very competitive in the marketplace and our card members are not being lured away by our competitors in the various offers that they have in the marketplace.
Thank you.
Thank you. We'll go next to the line of Moshe Orenbuch from Credit Suisse. Please go ahead.
Great. Thanks. A couple of questions about marketing. Jeff, could you just talk about whether you think just near term are your marketing efforts kind of accelerating or decelerating going into as we go into the Q4 and into 2014?
Well, I suppose it's a broad it's hard to broadly generalize about our marketing efforts because of course we do lots of things in lots of different areas. That said or with that caveat, if you just look at the marketing and promotion expense slide in our slides today, you will see that in the Q3, we had the highest spend we've had in quite a number of quarters. But I would say there's really a couple of factors that drive that. One is what we're really focused on is trying to balance our near term financial performance with the many strong investment and growth opportunities that we see across this company. I would tell you one of the things that perhaps has been one of the more positive surprises since I joined the company.
As I joined the company because I saw lots of great growth opportunities and lots of ways for the company to create value for its shareholders in the coming years. I would say since I got here, I've been even more surprised at the breadth and depth of the opportunities we have, which are very financially sound, financially positive to grow our franchise. And in fact, our challenge in many ways Moshe is to think about how we balance all of those opportunities with the fact that we also need to continue to achieve the steady strong financial performance that we're known for. So in many ways, we never have a shortage of financially sound profitable marketing initiatives to pursue. We have to be thoughtful and prioritize which ones we can afford given our financial targets.
What that means is when we are having a financially strong quarter and we did this quarter, it allows us to invest a little bit more in the future. And that's really what you see I think as you look at that marketing and promotions line.
Got you. And as a follow-up, can you talk about your approach towards the credit card enhancement products? I mean have you started to remarket those? And what steps did you take after what went on with the CFPB?
Well, obviously, another thing I've come to appreciate since I joined the company is the full complexity of the regulatory environment. And we remain incredibly committed as a company to continuing to improve all of our control and compliance efforts and to ensure that our customers always know exactly what they're getting and we deliver exactly what we told them we were going to deliver. And we think we've made significant improvements and we think we still have further to go in many areas. That certainly has had some impact on the full range of products that we offer. And those impacts will probably lessen over time as we continue to strengthen our control and compliance efforts.
But we want to be a little bit cautious to make sure that we pace all of our efforts in a way that allows us to be very consistent with what the regulators would like us to do and very consistent what is really in the best interest of our customers. And that does mean going a little slower times. Over time, we're quite confident we will be back being as nimble as we've ever been.
Great. Thanks so much.
Thank you. And next we'll go to the line of David Hoxton with Buckingham Research.
Thanks for taking my call. I wonder if you could expand on what you said about build business trends over the course of the quarter. I think you said there was no meaningful variance, but I wonder how that relates to the change in loan growth from month to month because it seemed through the 1st 2 months of this quarter, your loans were growing faster than the industry and it's kind of consistent with the high rate of spending growth. But then in September, there seemed to be a reversal of that trend. And I had a follow-up.
Well, I'll tell you, David. When we look at that data, we don't see a lot other than what may be noise and is not necessarily yet indicative of any trends. And certainly, we would believe that we're still outpacing the overall industry with our loan growth. There are also at times there are seasonal fluctuations, sometimes there's fluctuations around when holidays occur around Labor Day and when school start and back to school spending all those kinds of things can influence this a little bit. So as we've stared at the data, we really have not drawn any conclusions from that month to month volatility.
So we could expect some increase as we head into the Q4 again, do you think?
Well, that's we'll have to see what the 4th what tonight brings in D. C. And what the Q4 overall brings.
Okay. And then I'm sorry if I missed it, but did you say what the gain would be from publishing from the sale and what the impact on income would be going forward?
So the financial results of the sale of publishing are actually in the 3rd quarter results because while the transaction closed right at the beginning of October, because most of the impacts of the sale, broadly speaking were known. The correct accounting was to go ahead and accrue them in the results that we just published today. Now I would point out to you that this was a sale driven by the reality of banking regulations. And in fact, in the quarter, the net of all the costs associated with the sale and the sale itself is a very modest loss or a very modest negative for the company.
Anything further, sir?
Yes. I wonder, could you tell us how modest the loss is, the negative? Yes. No, but it's if it was more than modest, I would have bothered to call it out. I guess, part of what you see when you look at something like the professional fee line in the slide and you have a big hike in professional fees.
There's some costs associated with the sale as well as the business travel transaction and some other items. But it was a loss.
Okay. And then going forward, should there be any noticeable impact on other income?
So there will be a modest impact on revenues and it was a profitable business for us. As we go forward into Q4, we'll help make sure we call out to people what the impact year over year was, so we don't distort any of the trends. But it's it was a very important business to our card members and customers. It is a great management team and a great business and we're sorry to see it go. But it will not it will not be a meaningful financial event.
You just raised I know I used up my call up, but just clarify what you said about professional services that's crept up a lot over the last years. How much of that's control and compliance spending and how much is kind of one time items like sales and joint ventures and other investments do you think?
Well, there's a couple of things. Remember that the way we run our technology today, a tremendous amount percentage of our development efforts on technology are actually outsourced and run through that professional services line. And so as I mentioned earlier in my remarks, it's also true that increasingly many of our growth initiatives are technology oriented, which drives more technology application development spend. So that is certainly one and probably the largest significant contributor to the growth in that line. Now you are correct though that as have all large financial institutions, we have significantly increased our spending in the area of control and compliance.
And there is a significant portion of that spend that also runs through the professional fees line in addition to running through the salaries and benefits line. So that is a second component that is not one time in nature and will be ongoing and is very important and we'll continue to do it. I would say when you look at this quarter's results, which have that line up 15% that is not a run rate we would expect to be a normal run rate. And there were some one time anomalies including the costs related to the business travel transaction and the publishing sale amongst a few others that created a little bit of a spike this quarter. Okay.
Thanks very much.
Thank you. And we'll go next to the line of Bill Quirsh of Nomura Securities. Please go ahead.
Thank you. Good evening. Your supplement says that the URR was unchanged this quarter versus last at 98%. Can you give us a sense for how it's been trending over the last few quarters if you were to go out an extra decimal point?
Well, you gave me a heart attack there for a second, Phil, because if it was 98%, we would
sorry, I meant 94%. Sorry.
Hopefully, it says the supplement says 94%, which is the right number. And that number varies a little bit by a basis point or 2 each quarter because of course there's a very, very complex set of calculations based on the behavior patterns that we see across tens of millions of members. But on balance since we last made a methodology update, which would have been in Q4 of 2012, the number has been reasonably flat to 94%.
Okay.
And switching gears as a follow-up on credit. We've seen peak losses fall quite a bit post the crisis. Do you think that there's still room for peak losses on the loans that you're originating today to continue to move lower based on the credit quality at which you're underwriting loans currently?
Boy, we are at such a historical low. And as I have learned in the history, I think we've had quite a number or string of calls like this where he said we're at a historical low. It's great. But eventually things have to go up and then we have another quarter as we do this time where they've gone down. I would be hesitant to speculate, but Rick, you may want to add some comments if you like.
Yes.
I think what you said
You have more history.
It is exactly what we've said a couple of times, probably not just us, but a number of players in the industry. We continue to see good trends in delinquencies. So it's hard to see any deterioration there. But we continue to enjoy where we are now and haven't really put in place goals to change the risk profile of the company at this point.
Okay. Thanks very much.
We'll go next to the line of Sameer Gokhale with Janney Capital. Please go ahead.
Great. Thank you for taking my questions. I just had a couple. Number one, just touching on the expenses again. We're hearing over the last couple of quarters that American Express has been investing quite a bit on in big data projects, large data analytics projects and the like.
And if that's true, then where are a lot of those expenses? Are those in part of marketing because they're analytical in nature or in professional services? And should we expect the high level of expenses there to continue? Or would the mix shift more to what we think of as traditional marketing? And the other unrelated question was in terms of the expected or proposed sale of the business travel business and the cash of $700,000,000 to $1,000,000,000 it seems like that business was not generating a lot of bottom line profit.
So it seems like the bottom line impact should be relatively modest and I say relative compared to the $700,000,000 to $1,000,000,000 in cash that you expect to receive. So when you give the cash, do you expect that to be additive to your current run rate for buybacks and dividends? Or how should we think about that? Thank you.
Well, let me take those one at a time. So as I said a few minutes ago, our strategy historically in our technology development area has been to outsource a lot of that work. Therefore, the costs run through the professional services line. And certainly, you have heard us talk a lot about some of the really interesting things we're doing around big data and a portion of that involves some very complex IT work and that is some of what is driving up our technology costs in a very positive way, right? I mean these are we would love these into the kinds of growth oriented initiatives and spending that we're really pleased we have the financial strength to do and still hit our financial targets.
But that does run through the professional fees line. It's part of what's driving it up. I do want to keep coming back to a 15% year over year increase is not what we would expect as an ongoing run rate, but that is part of what's going on this quarter. To go to the business travel transaction, let me just step back for a second. So this what we're creating here will be a fifty-fifty joint venture.
And are very excited about this transaction because we think the influx of the capital from the other partners will really help the joint venture to do a better job than frankly it's been able to do for the last few years at growth and investing in technology because to some of the points I made earlier, we have so many great investment alternatives here at American Express that it has at times been difficult for travel to compete for our investment dollars. So because this is a joint venture that $700,000,000 to $1,000,000,000 goes into the joint venture. It does not go into the coffers of American Express. And the full expectation is that that joint venture will use that capital over time to grow and expand as a business. And we will benefit from that growth and expansion as a 50% owner of the joint venture.
Along those lines, so that if you think about the creation of the joint venture, we're contributing the business and the partner is contributing that portion of the capital that will drive some gain, which we haven't have yet to quantify until we get closer because the valuation on the joint venture will be based on the capital they're putting in for 50% and that will certainly exceed our current basis. On a go forward basis, the joint venture we will account for on an equity method. So you won't see the revenues and expenses of the joint venture. What you will see will be the earnings. And then the last point I would make is you're correct that the historical contributions of our business travel business to profits have been fairly modest and volatile at times.
It's been a very important and will remain a very important strategic part of the company. Certainly, part of the logic and appeal of creating this joint venture is we expect with the resources that the joint venture will have and with the focus it will have that it will become a very profitable and growth high growth enterprise and we'll be pleased to have 50% of it.
Perfect. Thank you for that clarification.
Thank you. We'll go next line of Bob Napoli with William Blair.
Thank you. Good afternoon. Jeff, welcome to the call.
It's great to be here.
Nice to have you. In the press release, Ken just mentions that the strength in earnings that you've had this year is going to give you the flexibility to make substantial investments in the Q4. I know there's been a lot of talk around expenses and many times you've reiterated the importance of the growth targets. But I just wondering if you could that kind of a call out in the press release, what you were thinking? I mean, the earnings in 2012 were 4 $40,000,000 if you look at your 12% to 15%, are you looking at it that way in some regard and to hit the minimum of 12 percent of earnings growth this year?
And maybe just quantify a little bit or give us a little more color on that call out in the press release.
Well, I think, Bob, we are always balancing making sure we achieve the financial targets that we're known for achieving on a consistent basis with investing to sustain the future and long term growth of the company. And you saw this quarter, our financial strength allowed us to get to a 15% EPS growth number year over year, while spending more in the marketing and promotions area than we spent in many quarters. And while also doing some of the things like some of the technology spending we talked about with the last couple of questioners, which is also very growth oriented. And so when you look at what Ken said in the press release today, he talks about the flexibility that our financial strength gives us, flexibility that gave us to make substantial investments this quarter in marketing and other initiatives. The Q4 is another quarter and you've seen 1 quarter, you've seen 1 quarter and we'll as we always do as we get into the 4th quarter make sure we balance what we need to do to achieve our financial targets with what we need to in the short term with what we need to do to achieve our 2014.
But I don't think we intended to make any particular call out on our actions that we would be taking in the Q4 in the press release.
Okay. Follow-up on the prepaid on the relaunch of prepaid and trying to understand a little bit more. I mean, you're expanding the distribution. You call out certain retailers and American Express has had a prepaid card on the racks and several of those retailers. Is the difference that you're rolling out, you're going to be getting more space in those new retailers and it will be offering a Bluebird like card, but not under the Bluebird name?
Well, I'd say it's a good question, couple of things Bob. When you look at the new launch of or the relaunch of serve, it involves a range of new product features that makes it a much more comprehensive tool for managing all of your financial affairs. As part of those broader capabilities, we are including a number of new partners and retailers that will help people with the card do cash load and in particular we called out CVS and 711. So the combination of the broader, more complete array of features based on what we've learned from Bluebird and other efforts that customers really value and want in these products along with the broader distribution network, we think makes this a very attractive product and we're very excited about the relaunch.
Great. Thank you.
So, operator, I think we have time for one last question.
Great. That will come from the line of Mark DeVries of Barclays.
Thank you. First question is on G and S. How long can that segment
continue to grow at the double digit plus rate
on build businesses? And is any Wells Fargo business in that yet? And how big can the Wells Fargo business
get for you? Well, a couple of questions. Our G and S business as you really pointed out is both active in the U. S. Marketplace as well as internationally.
And I might almost take your questions in turn. Certainly in the or split it into 2 parts. In the U. S, we are very excited about the Wells Fargo partnership. You wouldn't have seen any results from the Wells Fargo partnership in the Q3 results.
They're going to begin to do a few pilots in the Q4 and the larger rollouts will occur in 2014. But as you know, Wells is very focused on growing its credit card business. They have a tremendous customer base. They're very excited I think about what we are bringing to the partnership and we're very excited about their focus on trying to build broader loyalty across their current customer base. We think that's a model that can be replicated in many other places in the U.
S. And we are hopeful that over time you will see more announcements in that arena. When you go outside the U. S. In the G and S business, I guess I would point out the obvious, which is our we are still a modestly sized player in many markets around the globe, particularly relative to the 2 dominant networks.
We see tremendous opportunity to continue to grow at the kind of rates you've seen for a very long time. Because if you just do the math, we could grow at these rates for a very long time and still be the scrappy third competitor trying to bring innovation to the market and a focus on strong customer service and a focus on delivering real value to the merchants who we have to negotiate with every day. So this is a business that we launched in the late 1990s, 1999, I believe. It's interesting as a newcomer to look at the historical charts on this business because it took a while to begin to get some traction perhaps like some of our early efforts today may take a while to get traction. But we believe it has tremendous momentum right now and we're very, very excited about the business.
So on that note, I'd like to thank everyone for your time and say I'm very excited and pleased to be here at American Express. I think we had a tremendous quarter and I'll look forward to doing many other calls. With that, I'm going to turn it back to the operator.
Thank you. And ladies and gentlemen, today's conference will be available for replay after 7 p. M. Eastern Time today running through October 23 at midnight. You may access the AT and T teleconference replay system at any time by dialing 1-eight hundred-four seventy five-six thousand seven hundred and one and entering the access code of 303,793.
International participants may dial 320-365-3844. Again with the access code of 303,793. That does conclude your conference